Restaurants are the latest target of the tax man with many reported to be facing large tax bills for staff tips, accommodation and taxis.

HM Revenues & Customs (HMRC) is clamping down on untaxed tips, staff accommodation and staff taxis, and without proper systems in place, accountants BDO warn the liability lies with the business owner rather than with staff.

HMRC views tips as being undeclared income and staff accommodation and staff taxis as benefits in kind, and as such the Revenue views those as taxable which the owners of a restaurant are liable for.

Brian Lovie, director of employment taxes with BDO, said: “The Revenue regard all tips as income and so demand that tax and National Insurance Contributions (NIC) is paid on it.

“This is a liability that sits with the restaurant or hotel owner. At this time of year when the hospitality sector is in full swing business owners can, inadvertently, be racking up enormous future tax bills in tips for staff.

“Whilst many customers may see this as unfair to poorly paid waiting staff it is potentially disastrous for business owners who may finish a successful summer season with an unexpected tax bill.

“We know of one restaurant in Edinburgh, for example, which trebles his waiting staff for the month of August due to the enormous demand.

“Some industry estimates state that Edinburgh restaurants will take 40 per cent of their annual turnover during August.

“If you assume tips at 10 per cent then you are talking a potential tax and NIC liability running into thousands.”

Lovie adds HMRC see “rich pickings” from the restaurant trade, and is now randomly investigating restaurants across Scotland, though with a particular focus on Edinburgh due to the “enormous income from the Festivals during August”.

He adds: “If a restaurateur simply distributes tips without tax deductions then that liability falls to them for a sum estimated by HMRC.

“Therefore restaurateurs need to shield themselves from this if they are not to experience a post summer debt demand.

“The business owner has a number of options which include taxing the tips as they come in and paying them through the PAYE system.

“Appointing a tronc master who collects the tips and them disburses them to the staff, and this system doe not incur NIC so is more beneficial, or by simply ensuring that all staff have signed an agreement to submit their own tax and NIC for any tips that are paid.

“The important aspect of this is not to simply assume that the existing method works and everything will be OK.

“If the owner does not introduce a system prior to the tax liability occurring they will face a substantial bill.”